Gas prices higher but interestingly still very little inflation

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Published Date 4/10/2019

Longer-dated interest rates (10s and 30s) remained unchanged at 7:00 am ET; they were slightly better by 9:00 am.

The weekly MBA mortgage applications composite was down 5.6%, purchase apps dded +1.0%, and refinance apps were down -11.0%.

At 8:30 the March CPI expected +0.3% increased 0.4%; yr/yr expected +1.8% increased 1.9%. Core CPI (excluding food and energy) expected +0.2% increased 0.1%; yr/yr core expected +21.% increased 2.0%. Overall CPI was a little hotter, but the more important core was lower than estimates. There was a drop in apparel prices following a methodology change for data collection, offering some reinforcement for the Federal Reserve’s message of patience on interest rates. Apparel prices fell 1.9% from the prior month, the most since 1949, and were down 2.2% from a year earlier. The category accounts for 3.1% of CPI. Much of the increase in the overall due to increased prices for gasoline and crude oil. No inflation. Recent comments from Fed officials including Powell have finally come around to that view. This afternoon’s FOMC minutes may add more detail within the FOMC about what the Fed thinks, although Powell made it clear in his press conference after the meeting.

The ECB left its rates unchanged as was widely expected; no inflation there, and the EU economy slowly losing momentum will keep the ECB continuing to support interest rates. The International Monetary Fund warned overnight that the global economy is slowing more than expected and a sharp downturn could require world leaders to coordinate stimulus measures.

The EU is said to be willing to grant the UK another extension to possibly June 30th to provide Prime Minister Theresa May more time to craft an acceptable exit plan.

Yesterday the IMF once again lowered global economic growth across all large economies. The reason, according to its statement, is concern that trade issues won’t be solved soon and will continue to press on growth from the US to China and all points in between. The IMF’s latest economic forecasts cut the outlook for growth in 2019 to 3.3% from estimates of 3.5% in January and 3.7% in October. Wall Street firms are lowering their forecasts for U.S. government bond yields, the latest sign of investors’ mounting worries about slowing economic growth.

At 9:30 am the DJIA opened up +50, the NASDAQ added +48, and the S&P was up by +5. The 10 yr stood at 2.48%, down -2 bps from yesterday.

At 1:00 pm ETthe Treasury will auction $24B of 10-yr notes, re-opening the 10 issued in February. Re-openings usually are not quite as attractive as new issues. The demand is critical with the 10 trading under 2.55%, its near-term key support that so far has held on the correction and consolidation after the huge March rate declines. The low close for the 10-yr was 2.37%. It then increased to 2.54%, and now is at 2.48%. Mortgage prices recently have shown more resistance for improvement but will still overall track the 10-yr note.

At 2:00 pm we will see the minutes from the March FOMC meeting.

Also at 2:00 pm the March Treasury budget is expected to show a deficit of $179B after February’s deficit hit -$234B. April will show a surplus with tax payments coming. We expect the 2019 total Treasury shortfall will be about -$900B.

Source: TBWS

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